What makes Cardano a Great Platform for stablecoins?:
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Equal Opportunity Native Assets
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Low Transaction Costs & Deterministic network fees
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Inclusive Ecosystem
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Transparent Governance
UTXO and the Cash Analogy Why Does it Benefit Cardano Stablecoins
Let’s start with what is UTxO (Unspent Transaction output)and the cash analogy to grasp the concept of a UTxOs,
think of a UTxO as a digital version of a paper bill, but the bill can represent different assets of value. Imagine Your wallet is filled with paper bills, each representing a specific amount of money. Just like you exchange these bills to make purchases, UTxOs work similarly in the cryptocurrency realm.
To explain this further we are now at a sandwich shop.
Hypothetically, you have a $20 bill to buy a sandwich at a sandwich shop. Let’s call this $20 bill a UTxO, a unit that contains an arbitrary value of one, or many assets, in this case, just the $20 bill. In the UTxO accounting model, this would be represented as a transaction where the UTxO is “spent” by sending $5 to the sandwich seller, and $15 back to yourself. Note that the original unit no longer exists. It is “spent” and has become two new “unspent transaction outputs.” With this kind of accounting model, the UTxO is able to contain that information in itself, rather than have a smart contract maintain a list of who has dollars. Basically, how this works on the chain is a UTxO with $20 of USDM would be spent, and two new UTxOs would be created, one having $5, the other having $15, the $15 UTxO being a “change output”, since its essentially leftover value from a transaction, or “change” that you are sending back to yourself.
Each UTXO represents a specific amount of cryptocurrency, and when you want to make a payment, you spend some of these digital coins, just like you’d spend cash from your wallet.
The main difference between ERC-20 contracts and a UTxO basically is that ERC-20 contracts maintain a list of addresses and the amount that belongs to each address while in Cardano, assets live in a UtxO at an address, whose ownership is controlled completely by who can redeem that UTxO Basically, Cardano native assets don’t maintain a list of owners. Still, rather, they are objects that live in the wallets of owners.
Stablecoins also benefit from Cardano’s low and deterministic Fees.
Transaction fees can sometimes feel like a roller coaster ride — unpredictable and sometimes quite steep. But Cardano has a different approach. It uses a deterministic fee model, where the fees are calculated based on the actual resources your transaction consumes, just like you’d pay for the gas you use in your car.
This fairness ensures that you pay for what you use, no more, no less. And just like cash transactions that don’t have hidden costs, deterministic fees provide transparency, so you know exactly what you’ll be charged for your stablecoin transactions.
Stablecoins require frequent transactions, especially for everyday use. With predictable and fair fees, stablecoin users can make payments, transfers, and purchases without worrying about hefty transaction costs. This makes stablecoins an attractive choice for various use cases, from remittances to everyday transactions, offering a reliable and cost-effective alternative to traditional payment methods.
Cardano also benefits from its Native Asset standard
The Cardano ecosystem welcomes all native assets, including stablecoins, to participate in various DeFi (Decentralized Finance) applications and smart contracts. No restrictions or barriers limit stablecoins’ participation in these activities. As a result, stablecoins have the same opportunities to contribute to and benefit from the broader ecosystem.
The Cardano ledger treats all digital assets on the Cardano blockchain as Native assets. Whether it’s ADA (Cardano’s native cryptocurrency) stable coins, or NFTs they all share the same underlying infrastructure on the Cardano ledger. There are no preferential treatment or biases towards any specific asset on the Cardano ledger. This equality ensures that stablecoins have the same opportunities and capabilities as any other native asset on the platform, such as being able to participate in decentralized applications such as lending protocols and decentralized exchanges. They also do not rely on intermediaries or gatekeepers to exist or operate once the native asset is in your self-custodial wallet. Stablecoin issuers can directly manage their assets on the blockchain without needing approval from third parties.
This decentralization eliminates the risk of censorship or external control, providing a fair and open environment for stablecoins.
To conclude stablecoins on Cardano act like cash, all stablecoins act as a native asset to the Cardano ledger (blockchain) meaning they are inclusive, and eliminate the risk of censorship from outside control allowing people to take control without having approval from 3rd parties or gatekeepers.